Comments on ADCT Downtrend and Reversal Bottom on Panic Selling

 

Trade 1

[09:52] <@Threei> Consider Shorting: ADCT, stop 19 1/4
[09:57] <@Threei> move your stop to breakeven on ADCT
[09:58] <@Threei> scalpers, bid ADCT at 18 1/16
[09:58] <@Threei> sane traders cover half here
[09:59] <@Threei> keep stop at breakeven on another half
[10:02] <@Threei> if ADCT bounces from 18 this time, cover in full
[10:02] <@Threei> if goes under 18, trail your stop to 18 3/8
[10:08] <@Threei> ADCT, trail stop to 18 1/4

Trade 2
[10:19] <@Threei> ADCT looks like short to me again
[10:19] <@Threei> very weak bounce
[10:39] <@Threei> ADCT went down finally
[10:40] <@Threei> move your stop to 17 1/4 and let's wait for it to break 17
[10:41] <@Threei> never saw stock with such a huge float that readable
[10:41] <@Threei> stop to 17 on ADCT
[10:42] <@Threei> I would cover adct here
[10:42] <@Threei> don't see it as long though

Trade 3

[10:49] <@Threei> Consider Buying: ADCT
[10:49] <@Threei> looks like double bottom formed
[10:50] <@Threei> stop is 1/2
[10:51] <@Threei> nah, no go
[10:51] <@Threei> anyway, feels like bottom is close
[10:51] <@Threei> let's give it one more gasp of selling

Trade 4

[10:58] <@Threei> Consider Buying: ADCT
[10:59] <@Threei> stop is 15 7/8
[11:02] <@Threei> finally we got worthy bounce
[11:03] <@Threei> folks, need comments on ADCT or you know the drill already? :)
[11:04] <@Threei> OK< scalpers offer ADCT out at 7/16
[11:04] <@Threei> the rest offers out half
[11:04] <@Threei> up stop on remaining shares to breakeven
[11:07] <@Threei> now, with every 1/16 bid uptick up yuor stop by 1/8
[11:08] <@Threei> it's at 1/2 now
[11:08] <@Threei> this way yoor stop will get closer and closer to the trading price
[11:08] <@Threei> and finally first downtick will hit it
[11:08] <@Threei> still at 1/2
[11:11] <@Threei> stop wasn't jeopardized
[11:12] <@Threei> this time 1/2 might get hit
[11:13] <@Threei> OK, trade is closed
[11:15] <@Threei> now I would just give ADCT totrade for while to set up new range
[11:16] <@Threei> it becomes the arena of too hot battle and I would want to stay away for a while
[11:17] <@Threei> if ADCT just goes straight up, it goes without me

11/14/00  <Threei>  I would like to go through one of the trades we did about couple weeks ago
11/14/00  <Threei>  please open chart with quotes from the log at http://www.realitytrader.com/calls/adct.htm
11/14/00  <Threei>  This is great educational material as it allows me to show some of major principles we use in our trading.
11/14/00  <Threei>  ADCT closed right below 19 Oct 26,
11/14/00  <Threei>  opened with slight gap up
11/14/00  <Threei>  and approximatelyin 20 minutes after open hit 19 again.
11/14/00  <Threei>  That was what we call pivotal point for ADCT.
11/14/00  <Threei>  The way stocks act at pivotal points defines the direction of the trade.
11/14/00  <Threei>  Should it bounce from 19, and I would be most likely looking for ir to break recent high.
11/14/00  <Threei>  Instead, it got selling at 19 and downticked.
11/14/00  <Threei>  This is very interesting moment and I would like to go through it in deeper details.
11/14/00  <Threei>  First of all,
11/14/00  <Threei>  what we did at this moment is not that obvious for many
11/14/00  <Threei>  for the following reason (attention trialers please):
11/14/00  <Threei>  the most obvious approach traders base their trading decisions on is:
11/14/00  <Threei>  Buy Low, SEll High
11/14/00  <Threei>  Apparently that was not what we did in this case:
11/14/00  <Threei>  we sold short the low.
11/14/00  <Threei>  Why?
11/14/00  <Threei>  Because this famous principle
11/14/00  <Threei>  RT Info: DOW 10,642.38 +125.13 | NAS Comp 3,095.03 +128.31
11/14/00  <Threei>  S&P 500 1,376.58 +25.32
11/14/00  <Threei>  is in direct contradiction with another, not less famous:
11/14/00  <Threei>  Trend is your friend.
11/14/00  <Threei>  Really, look at it this way:
11/14/00  <Threei>  if you go with trend,
11/14/00  <Threei>  why would you want to buy low or short the high?
11/14/00  <Threei>  If stock is trending down
11/14/00  <Threei>  buying the low would be fighting the trend.
11/14/00  <Threei>  Every new low just confirms trend continuation
11/14/00  <Threei>  and is to be shorted, not bought.
11/14/00  <Threei>  This way you will be correct on every new low
11/14/00  <Threei>  and mistaken just once at the ultimate bottom.
11/14/00  <Threei>  Trying to buy the bottoms, you would be mistaken several times
11/14/00  <Threei>  and correct just once.
11/14/00  <Threei>  The ame goes for shorting of strong stocks
11/14/00  <Threei>  and I am sure you saw plenty of examples of traders getting killed trying to pick the bottoms or tops.
11/14/00  <Threei>  Trading is not about picking of tops and bottoms,
11/14/00  <Threei>  trading is about determining the trend.
11/14/00  <Threei>  Actual buying/selling points within the trend is just more fine consideration
11/14/00  <Threei>  as you try either pick up the shares at the bottom of pullback or at breakout level,
11/14/00  <Threei>  or go with some kind of hybrid
11/14/00  <Threei>  buying half of position on the bottom and adding on breakout.
11/14/00  <Threei>  Is there case when you buy low and sell high?
11/14/00  <Threei>  Yes, there is.
11/14/00  <Threei>  It's correct behavior when you identified that stock is trading within the range, not trending.
11/14/00  <Threei>  But as soon as range is broken,
11/14/00  <Threei>  you have to switch to another kind of trading:
11/14/00  <Threei>  buy high sell higher
11/14/00  <Threei>  or sell low, buy back lower.
11/14/00  <Threei>  This is the reason why traders that go with buy low sell high do so poorly in trending market.
11/14/00  <Threei>  I saw (and I am sure you did, too) plenty of them getting killed during huge market runup
11/14/00  <Threei>  as they tried to short the tops
11/14/00  <Threei>  and the same happened to those who tried to uy bottoms during market fall.
11/14/00  <Threei>  Let me address you to two sources with more info on this matter:
11/14/00  <Threei>  Our class Switches in thinking: http://www.realitytrader.com/class3.htm
11/14/00  <Threei>  and our workbook, Typical scenario Trading Range.
11/14/00  <Threei>  Let's go back to ADCT chart.
11/14/00  <Threei>  Short alert was issued when ADCT broke 19 to the downside.
11/14/00  <Threei>  As you can see, stop was placed at 19 1/4.
11/14/00  <Threei>  here is why:
11/14/00  <Threei>  stock tried to penetrate 1/4 during weak attempt to bounce
11/14/00  <Threei>  and this level became natural resistance.
11/14/00  <Threei>  If ADCT bounced from under 19 and went through 19 1/4
11/14/00  <Threei>  I would consider it showing more strength
11/14/00  <Threei>  as it overcame resistance level.
11/14/00  <Threei>  This never happened
11/14/00  <Threei>  and ADCT broke down pretty fast.
11/14/00  <Threei>  Around 18 it showed some support
11/14/00  <Threei>  and we have covered the short, some in full, some half with trailing stop.
11/14/00  <Threei>  Later on, ADCT has found more support at 17 1/2.
11/14/00  <Threei>  It made several weak attempts to bounce from this level
11/14/00  <Threei>  and volume dried up.
11/14/00  <Threei>  Not successful attemts to bounce lead us to the conclusion that downtrend is still intact
11/14/00  <Threei>  and another short alert was issued.
11/14/00  <Threei>  It took ADCT about 20 minutes to realize that it has to go down
11/14/00  <Threei>  but eventually it did
11/14/00  <Threei>  and we covered it around 16 1/2.
11/14/00  <Threei>  Please note the volume spike as ADCT went down to 16.
11/14/00  <Threei>  That was capitulation:
11/14/00  <Threei>  fast selling on sharply increased volume
11/14/00  <Threei>  which usually indicates the end of selling
11/14/00  <Threei>  and gives reasonable expectation of reverse.
11/14/00  <Threei>  You can find more on this principle in the workbook in principle #6 and Typical scenario Bottom Fishing.
11/14/00  <Threei>  That's where we started to look for bottom buy
11/14/00  <Threei>  as it really looked like trend is about to reverse.
11/14/00  <Threei>  We made two attempts:
11/14/00  <Threei>  first lead us to flat trade arond 16 1/2 - 9/16,
11/14/00  <Threei>  stock sold down once again on exhausted selling,
11/14/00  <Threei>  which we felt like ""last gasp"" of selling.
11/14/00  <Threei>  Nest buy alert was issued at 16 1/8
11/14/00  <Threei>  with stop 15 7/8.
11/14/00  <Threei>  Stop placing in this case is easy:
11/14/00  <Threei>  any new low, and we have to admit that downtrend is still there.
11/14/00  <Threei>  Closing of the trade was easy as it went up pretty fast:
11/14/00  <Threei>  scalpers got their 5/16 - 3/8,
11/14/00  <Threei>  for the rest of traders selling of half was called
11/14/00  <Threei>  and stop was trailed on remaining shares.
11/14/00  <Threei>  We haven't touched ADCT that day anymore
11/14/00  <Threei>  despite its nice climb after double bottom was formed.
11/14/00  <Threei>  The reason for our decision to stay away was:
11/14/00  <Threei>  pace became pretty flat on it
11/14/00  <Threei>  which made stock tough to read.
11/14/00  <Threei>  I am not sure it's easy to see in volume portion of chart,
11/14/00  <Threei>  but in reality it looked like stock just climbs with the same pace of trades.
11/14/00  <Threei>  OK, I think I said everything I wanted about this chart...